When Should Someone Feel Financially Prepared to Retire?

Dave Ramstack
Dave Ramstack
Published on June 23, 2020

Retirement is one of those topics that can make people uncomfortable. There are so many questions surrounding the appropriate time to retire. For many seniors, even age 65 seems too good to be true. 

There are plenty of indicators to help people understand when retirement is a safe decision.

When should someone not consider retirement just yet? 

First off, it’s important to understand the red flags that indicate someone is not quite ready yet to retire. 

Excessive debt 

Credit card debt in the U.S. has steadily been increasing, from 660 billion in 2014 to 890 billion in 2020. 

Adults in the 55-64 age range on average held $8,158 in credit card debt in 2018, impacting potential retirement decisions. 

Debt like car loans, mortgages, and other liabilities can really hamper someone’s ability to gain solid footing with their financials. Options like downsizing to a smaller home (but more importantly a smaller mortgage) and keeping cars much longer can help prevent needless interest payments from piling up. 

Difficulty paying bills

If struggling to pay bills between paychecks is a reality, retirement won’t help the situation. Many financial advisors would recommend that retirees should shoot for 70-80% of their pre-retirement income for retirement. 

If social security combined with other retirement funds like a 401k or pension won’t provide that, retirement should probably be delayed. 

Reducing revolving bills and paying off debt are great ways to speed up the process. 

No emergency plan 

There are so many “what ifs” that can arise in retirement. Older age often means additional health concerns or illnesses. Would a long hospitalization and excess medical bills be detrimental to long-term financial health? 

Would a new roof or AC unit threaten the retirement fund? These are all crucial questions to ask before considering retirement. Without an emergency fund, an unexpected expense could put the whole plan in jeopardy. 

Signs that someone is ready to retire

A monthly financial plan in place 

A retirement roadmap is a key part of the planning process. What will monthly bills look like? What will disposable income look like? 

Creating a monthly outline to stay organized is an imperative step, as it can prevent overspending and ultimately unnecessary financial stress.

A plan to cover healthcare

Healthcare costs can increase tremendously in retirement. Hospitalizations, imaging, tests, and rehab costs can all add up quickly. The age someone retires will have an effect on health insurance, since retirees don’t get Medicare coverage until age 65. 

If someone is ready to retire before then, it’s important to have a plan for health insurance that will bridge the gap until Medicare eligibility is reached. 

A solid nest-egg

Ultimately, adequate savings will be a main factor in determining someone’s readiness to retire. Taking into consideration disposable income needs, healthcare costs, debts (which would ideally be none), and other bills, retirees need enough money to cover them for potentially 30 years or more. 

Income sources can be from social security, pensions, 401k accounts, annuities, cash savings, and other investments. 

Another consideration is how early these sources can be withdrawn from. Early withdrawals can mean hefty penalties and fees, so someone looking to retire should have a reliable source of income that won’t see penalties when drawn from. 

As an insurance agent, you can help people evaluate their readiness for retirement, and assist in establishing sources of income like annuities and life insurance. 

Interested in becoming an affiliated agent with American Senior Benefits? We provide our agents with top-notch training and support. If you’ve wanted to work for yourself, there’s never been a better time to start than now. 

Contact us today for more information.

The post When Should Someone Feel Financially Prepared to Retire? appeared first on American Senior Benefits.

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